Philip Baum, acting CEO of Anglo American SA
Send this article to a friend
Print this page

» We were caught by surprise - Ras Myburgh, CEO, Kumba Iron Ore
» Mittal beats Kumba to Faleme iron ore
» Kumba loses grip over costs

» JSE:KUMBA IRON ORE LIMITED:
24215c 5%

Question mark over Anglo/KIO tie-up
David McKay
Posted: Mon, 30 Apr 2007

[miningmx.com] -- YOU'VE got to wonder what the future holds for Kumba Iron Ore (KIO), Anglo American’s 64%-owned listed subsidiary. Created last year to represent the group’s move into a new mining product, KIO now finds Anglo has started to simultaneously build its own offshore iron ore portfolio.

Anglo announced earlier this month that it was to spend $1.5bn buying a 49% stake in MMX Minas-Rio, a low-cost Brazilian iron ore project, with an option to take 50% control. The acquisition comes recommended by some analysts.

Said Simon Toyne, of Britain’s Numis Securities: “It clearly adds confidence to our estimates. More importantly, it’s also encouraging evidence of Carroll’s [Anglo CEO, Cynthia] willingness to drive the business forward through acquisition as well as organic improvement.”

(Although you’ve got to suspect that acquisition, coming so soon after Carroll took the reins from predecessor Tony Trahar, wasn’t originated by her.)

So where exactly does that place KIO? Will its attempts to pursue an international strategy place it at odds with Anglo? Perhaps more importantly, does Anglo’s independent iron ore strategy suggest KIO will eventually be subsumed?

“I don’t think there’s a conflict,” said Philip Baum, acting CEO of Anglo American SA. “The iron ore investment is in the pellet market, which is one in which KIO doesn’t have an interest.” That’s echoed by Ras Myburgh, CEO of KIO, who said: “It doesn’t concern us.”

However, Myburgh said KIO was always aware that Anglo might pursue its independent strategy. “It’s something we thought could happen.”

Said Baum, Anglo has been in Brazil since 1974 and that it was quite natural to be presented with a new investment opportunity there. Anglo has also simultaneously held separate investments in the same metal, such as its 51% stake in AngloGold Ashanti and its 15% stake in Gold Fields.

Baum was also hopeful that KIO will continue with its growth strategy in South Africa and Africa despite apparently losing out to the Mittal Group in its bid to develop the Faleme mine in Senegal. “KIO has a threatened West African position. But it still has it,” Baum said.

Click Here to subscribe to our daily newsletter
The situation does again raise the question of how much growth KIO has in its locker outside its stated South African strategy. It's also worth noting the news, issued earlier this year but which received little publicity, that R2.5bn plans to extend the life of the Thabazimbi iron ore mine by 20 years - known as the Phoenix Project - has been shelved.

Mittal SA, the steel producer, which was to provide demand for the mine extension, has decided to pursue other projects leaving KIO to look for smaller ways of keeping Thabazimbi alive. According to Myburgh, Thabazimbi has four years of life left. "A new tactic for the mine needs to be developed," he said.

KIO is running scenarios whereby small extensions can keep Thabazimbi running for a few more years.

Meanwhile, Baum is less forthcoming concerning Anglo’s plans for its listed subsidiary. “No comment,” he said, when asked if Anglo would consider buying out minority shareholders in KIO.